Executive summary:
Huanneng Technology is a leading manufacturer of magnetic separation water purification equipment in China. It was listed in February 2015 and is mainly engaged in industrial water environment treatment business. It subsequently acquired 100% shares in Jiangsu Huada (centrifuge) and 65% shares in Sitong Environment (municipal water treatment, engineering contract). Currently, its main business is complete water treatment equipment, centrifuges, operation services, municipal engineering construction, and municipal sewage investment and operation.
The recovery of the downstream industry has helped sales of environmental protection equipment. With magnetic separation water purification technology as the core, the company specializes in two major products: complete disk separation and purification equipment and complete supermagnetic separation water purification equipment. Magnetic separation technology is mainly used in fields such as metallurgical turbidity ring water treatment, coal mine water, municipal sewage treatment, and water environment treatment. The company's water treatment equipment business revenue in 2017 increased by 107.72% year-on-year, accounting for 38.19% of the company's total revenue, and gross margin further increased to 47.74%. As supply-side structural reforms advance in depth, the profitability of downstream industries such as steel and coal has increased. At the same time, environmental protection supervision has become stricter, a new round of inspections in the environmental protection industry has begun, demand for environmental protection equipment has increased, and the water treatment equipment sales business is expected to continue to grow rapidly.
Water environment management has been laid out, and the share of operations has increased. The subsidiary, Sitong Environmental, is mainly engaged in municipal sewage treatment investment, operation and engineering construction. The acquired company has obtained engineering qualifications and rich experience in the field of municipal sewage treatment, improving the water environment treatment industry chain. The Beijing Laofeng River Emergency Treatment Project uses magnetic separation technology to clean up rivers and was selected as a typical case of black and smelly water bodies in the country. The project is highly replicable. With the gradual increase in water environment treatment projects, the scale of the company's operating services has been further expanded, the share of the company's revenue has steadily increased, and the company's business structure has gradually improved.
The gross profit margin of centrifuges has increased, and there is more market space for sludge disposal. The main business of the subsidiary Jiangsu Huada is the R&D, production and sales of centrifuge products. Through the acquisition, the company has obtained advanced technology and equipment manufacturing capabilities in the field of centrifuges, and high-quality and efficient centrifuges will effectively dispose of sludge and polluting concentrates generated after sewage treatment, helping the company lay out the field of sludge treatment at the back end of water treatment. The company's centrifuge and supporting business accounted for 26.05% of the company's revenue in 2017, and gross margin increased to 37.90% year-on-year. It is estimated that the “13th Five-Year Plan” sludge operation and facility investment space is close to 65 billion dollars, and the performance contribution of this business is expected to increase steadily.
Risk warning. The pace of business development has fallen short of expectations, the recovery of the downstream industry is unsustainable, the expansion of treatment of black and smelly water bodies falls short of expectations, the performance of mergers and acquisitions does not meet expectations, and there are systemic risks in domestic and foreign secondary markets.
